Question

On January 1, 2018, Robertson Construction leased several items of equipment under a two-year operating lease agreement from Jamison Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $40,000 each, payable semiannually on June 30 and December 31 each year. The equipment was acquired by Jamison Leasing at a cost of $360,000 and was expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semi-annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
Prepare the appropriate journal entries for the lessee from the beginning of the lease through the end of 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.)

1.  Record the beginning of the lease for Robertson.

2.  Record the lease and interest payment for Robertson

3.  Record the amortization of right-to-use asset for Robertson.

4.  Record the lease and interest payment for Robertson.

5.  Record the amortization of right-to-use asset for Robertson.

Answer 1

Present value of periodic lease payments:

$40000*3.80773 = 152309

*Present value of an annuity of $1: n = 4, i = 2%. Because of Half year

The appropriate journal entries for the lessee from the beginning of the lease through the end of 2018.

Date (year 2018)	Particulars	Dr	Cr
Jan.1	Right-of-use asset	152,309
	Lease payable		152,309
Jun. 30	Interest expense [2% × ($152,309 − 0)]	3,046
	Lease payable (difference)	36,954
	Cash (lease payment)		40,000
Jun. 30	Amortization expense ($40,000 − 3,046)	36,954
	Right-of-use asset		36,954
Dec 31	Interest expense [2% × ($152,309 − 36,954)]	2,307
	Lease payable (difference)	37,693
	Cash (lease payment)		40,000
Dec 31	Amortization expense ($40,000 − 2,307)	37,693
	Right-of-use asset		37,693